Intel may cut capex, says analyst

SAN FRANCISCO—Intel Corp. may cut back on capital equipment spending in 2011 and 2012 in the face of slackening PC demand, according to a Wall Street analyst.

In a report circulated Tuesday (Aug. 30), C.J. Muse, an analyst at Barclays Capital, said sources indicate that Intel (Santa Clara, Calif.) has removed its Fab 24 in Leixlip, Ireland, from its 22-nm roadmap. It is unclear whether Intel will reallocate 22-nm equipment slated for Fab 24 to other fabs in Israel and Arizona, Muse said.

"What is unclear to us is whether Intel will reallocate capacity to Israel or other facilities or whether this is a cut to capex," Muse wrote in the report. Muse said he believes that Intel is planning to decide the second week of September whether to send the equipment elsewhere or to keep it off line.

Intel has not publicly said it would build 22-nm chips at Fab 24. The company has previously listed as 22-nm facilities its two development fabs in Oregon as well as Fab 28 in Israel and Fab 32 and Fab 12 in Arizona.

In January, Intel announced plans to invest $500 million to re-commission its Fab 14 in Leixlip, which had been closed in February 2010. At the time, the company made no commitment to a specific technology node as part of the investment.

A spokesperson for Intel confirmed Tuesday that the company has no plans currently to convert Fab 24 to a 22-nm facility.

But, in an email exchange with EE Times, Muse said his understanding was that Intel was definitely planning to build 22-nm chips at Fab 24, with equipment deliveries expected in 2012.

"Now, as of Friday, it appears that Intel has removed this fab from its 22-nm roadmap," Muse said. "What is unclear is whether they have decided to put equipment for the fab in Israel, Arizona or Oregon, or whether they don't think they need to capacity or just simply want to be conservative on capex in the current environment."

According to Muse, weakening PC sales over the past months have led many to believe Intel could cut its third quarter sales target. Muse said he and fellow Barclays analysts were on the fence about this possibility, citing relatively lean inventory in the channel and strength in server demand, which could enable Intel to reach the low end of its guidance of revenue of between $13.5 billion and $14.5 billion and pro forma earnings per share of 60 to 65 cents.

"But with talk of a hiring freeze at Intel and now some push to capex, these data points aren't exactly positive for Intel, in our view," Muse added.

I don't believe that anyone is talking about Intel shutting down any fabs. This is just some speculation that Intel will not immediately upgrade Fab 24 in Ireland to 22-nm (which the company never publicly said it planned to do).